By Ronald A. Glenn, MA, CFP

Putting together a will is often the first step in creating an estate plan, but the mere act of creating this document does not guarantee property will transfer according to your wishes. There are assets that can pass outside of your will or estate if you do not consider the ramifications of proper titling during your lifetime. Below are some of the more common and well-utilized forms of property ownership.

The maximum ownership interest a person may have in property is known as fee simple or absolute ownership. This gives the owner the right to use, possess and dispose of the property in any way he or she chooses during life and at death. Since there are no survivorship rights in this kind of ownership arrangement, property must generally pass through probate. In other words, a person’s will dictates to whom this property passes. Bank accounts, investment accounts and real estate owned by one individual and titled in his or her name only are all examples of absolute ownership.

Joint tenancy with rights of survivorship (JTWROS) is property owned by two or more people, each owning an undivided, equal interest in the entire property. This is one of the most common ways married couples title accounts without giving it another thought. Property owned in this way passes to the surviving owner(s) by right of survivorship. It is often desirable for spouses to hold at least one account in JTWROS form because the surviving spouse will have immediate access to the funds at the death of the first spouse. Property owned this way avoids probate altogether and passes by operation of law.

When two or more people own an undivided and possibly unequal (fractional) interest in the entire property, such an arrangement is referred to as tenancy in common ownership. The undivided interest of each owner is treated as being owned outright and this interest can be sold, donated or passed at death. Unlike JTWROS when one tenant or owner dies, the remaining tenant(s) do not automatically receive the interest by operation of law; rather the tenant in common must specifically provide for the disposition of the property in his or her will. Real estate owned by multiple parties in unequal shares is often titled as tenancy in common.

In addition to account titling, coordinating beneficiary designations with your will or trust is an important, yet often neglected, component of a successful estate plan. Wills and trusts pass most assets titled in your name or trust name to the beneficiaries named in the document. However, assets such as life insurance, annuities or individual retirement accounts (IRAs, 401(k)s, etc.) pass directly to third parties through a beneficiary designation. So even if your will or trust names different beneficiaries, these assets will not pass according to either document. Assets with beneficiary designations pass to heirs by contract only. Also, payable on death (POD) or transfer on death (TOD) accounts, another common form of legal agreement, pass directly to designated beneficiaries by contract at the account owner’s death without going through probate. Assets titled in this way will not pass according to any instructions in your will or trust. In addition, it should also be noted that beneficiaries do not have access to the account during the owner’s life.

As you can see, the estate planning process does not begin or end at the creation of a will or trust. The titling of assets and accounts during your lifetime is an important component of estate planning, as well. It is also essential to be mindful of your property’s disposition at death if you have more than one person inheriting your estate. A diagram or flowchart is a good visual depiction of what will happen at that time and will ensure your estate plan is consistent with your wishes.

In addition, a simple call or consultation with your trust administrator can also uncover any issues with your current plan. We stand ready to help you in any way we can.